The column by Patrick Hoyos in todays Nation makes for interesting reading. The machinations of the BHL Board demonstrates why there is a lack of confidence (in some quarters) in publicly listed companies in Barbados especially.

Share dilution, BHL-style

By Patrick Hoyos | Sun, January 30, 2011 – 12:00 AM

After many years of trumpeting the fact that its flagship company Banks Breweries was built by the savings and risks taken by ordinary Barbadian workers, many of them Banks employees, BHL scheduled its extraordinary general meeting for a weekday morning at 10 o’clock, a most inconvenient time for most working people, and away from the company’s various factories and offices, where many of said shareholders still work every day.

At the meeting last Monday, after protests from many learned shareholders, including Dr Frank Alleyne, attorney Pearson Lovell, accountant Douglas Skeete, Goddard Enterprises CEO Martin Pritchard, Roger Cave of Fortress, former BBC CEO Martyn King, UWI lecturer Walter Blackman and shop owner Sharon Inniss, a vote by show of hands was not allowed.

I wonder why. Instead, the meeting went straight to a poll vote, which means you vote your shares, so no shareholder had the chance to officially have their vote recorded.

The resolution to not allow any more vote dilution after allowing the incoming shareholder to do so to everyone else’s shares was therefore carried by a huge majority of votes, not shareholders.

And that’s how BHL closed the barn door on share dilution, after letting the horse escape one last time.

But back in June 2010, in announcing to shareholders it was issuing new shares to Latin Capital Fund I, LP via its subsidiary SLU Beverages Ltd, Banks Holdings Ltd agreed that dilution was a pertinent issue.

In its June 30, 2010 letter to shareholders, it pointed out that “there is the potential for the note holder to acquire just over 20 per cent of Banks Holdings (if the full debt is converted). This will result in a dilution in shareholders’ percentage holdings by that percentage . . .”. 

However, continued the letter, after discussing the matter “with our major shareholders” – who were not named – they “endorsed the plan to proceed with this method of financing”.

And, in fact, said the letter, by the date of the circular (June 30) the board had “received written authority” to convert US$26.5 million in shares of the total convertible debt of US$28 million, into 13.25 million shares in BHL.

Thus, BHL acted in a way that diluted the shares of every other shareholder in the group without the knowledge or approval of the vast majority of shareholders. By its own admission.

The BHL letter of December 13, 2010, which called the EGM and was also signed by chairman Sir Allan Fields and CEO Richard Cozier, admitted to shareholders that “an integral part of financing models such as this is the need to protect all shareholders from future dilutions of their holdings and such a clause is included in our agreement”.

With no hint that it understood the irony of the situation, the company said the EGM was being “convened specifically” because “we have been advised that shareholder consent for restrictions on future utilisation of shares as a financing option should be obtained”. You bet.

The letter on June 30 contained a lot of smoke about the note holder having ten years in which to “exercise any conversion and must notify BHL at least six months prior to the end of the ten-year term if they do not intend to convert”, thus allowing the company to “explore options to facilitate the balloon payment”.

But five days before this letter was sent out, BHL had already converted 94.6 per cent of the Latin Capital loan to shares. And there you have it: share dilution, BHL-style.

 Patrick Hoyos is a long-standing journalist and publisher of the Broad Street Journal.

While I think the exchange will survive, one of my major concerns is the potential impact on the minority shareholders if trading continues to be thin or decline further.

Exactly how do you extract value from your investment as a minority shareholder if shares don’t trade so that the share price reflects the perfromance of the company. You are stuck with the dividends set by the dominant shareholders.

Justin Robinson Submitted on 2011/01/30 at 11:57 AM

While I think the exchange will survive, one of my major concerns is the potential impact on the minority shareholders if trading continues to be thin or decline further.

Exactly how do you extract value from your investment as a minority shareholder if shares don’t trade so that the share price reflects the performance of the company. You are stuck with the dividends set by the dominant shareholders.

Isn’t the same concern extended to mutual funds which our large middleclass has been encouraged to add to their investment portfolio?

Thanks for the suggestion for the hyperlink. I can certainly do that.

See blog just updated.

@Hants

Would have to defer to the stockbrokers who should be intimate with the workings of the companies listed. If you insist however given the harsh economic environment which is with us there is good reason to feel bullish about WIBISCO. The days of butter biscuits may not be too far away.

If you find someone willing to part with their C&W barbados shares i think that would be best bet currently.

My problem with the BL&P Emera issue is that no country should allow a Monopoly and Essential service to be foreign owned.

@David, I hope you are going to start a discussion on the BLPArthurMottleyhalfmillion.

Barbados was upposed to have had an exonomic boom over the 1994 to 2007 period. How is it that during that boom our stock market actually went backwards?

Maybe mascoll was right. Maybe we had a boom funded by the government borrowing large sums of money and spending it on various projects with little long term benefits.

Much ado about the BL&P share sale, little ado about Banks Holdings interesting debenture issue/ share conversion resulting in dilution of minority interests.

While the BL&P is a national entity and a structural necessity, Banks Holdings is a major money earner and sound company.

However, it does appear that the BL&P share issue was certainly discussed and pressented in much more detail than the Bnks Holdings ‘takeover’.

It appears that many monority shareholders are very upset at how this matter played out and rightly so.

Why would such as Banks Holdings seek to obtain a debenture from a foreign venture capital company, rather than just deal with a local commercial bank?

Surely the local banks would have clamoured to loan the money for the new facility?

Who owns the venture capital company, ultimately?

The way this occurred appears rather unusual.

And some people want Bajans to put their money and trust into more companies in the Caribbean??

When are directorships going to be more widespread? How are directors chosen?

Must be joking!